Power quality can generally be achieved by installing harmonic filters in industrial power systems, thereby reducing the harmonics. Users prioritize the performance and cost of filters as primary concerns. In this study, we formulate the harmonic filter design problem by considering investment cost and operational constraints. This new formulation is a combinatorial optimization problem with a nondifferentiable objective function. A solution methodology based on an optimization technique-simulated annealing-is also proposed to determine the size of filters with minimum cost. The proposed solution methodology can offer the optimal size and minimum cost of design filters.